:::: MENU ::::
Posts tagged with: snowball method

Savings versus Debt

by

Just to piggyback on my earlier post….

What do you guys think about this?

Screen Shot 2015-11-13 at 4.35.52 PM

Image from this article.

Apparently the image was originally from a poster on Reddit, who advocated a minimum 3-6 months of savings in an EF as well as a steady 401(k) contribution (up to employer match) prior to tackling debt.

It seems to me based on some recent conversations (occurring inside the comments sections of a few posts), that this is the approach advocated by some of our readers.

Of course, for any Ramsey followers (who, admittedly, is one of the first people to get me into personal finance, although I don’t blindly follow all his teachings; I pick and choose what works for me), this is drastically different than what is recommended. Ramsey’s Baby Steps  advocate (#1) starting with a $1,000 beginner emergency fund. His argument is that most unexpected emergencies are about $1,000 or less, so that should be an adequate fund for most people. In my own debt-reduction experience, we’ve had a handful of emergencies (e.g., emergency root canal, emergency car repairs). All of our emergencies except one have been under $1,000. And the one time we had to raid our EF for over $1,000 was this past August. It was not actually due to any large emergency expense, but due to a lack of income! I don’t get paid in August (just due to normal schedule of payment) and hubs ended up having a no-income month that month (he has a variable income). So, really, I would consider this more of a factor related to variable income rather than due to an emergency, per se.

Ramsey’s next baby step (#2) is to pay off all debt but a mortgage, followed by (#3) going back and re-stocking the EF up to 3-6 months expense.

Obviously a very different approach, right?

What other factors do you think are important?

I think for single people, people without kids, people with low monthly expenses, renters, and people with steady/predictable income a lower EF might be sufficient. I also think it depends on the size of the debt (e.g., will it take 3 months to pay off or 3 years to pay off? I’m more likely to be “ok” with a smaller EF for a short period of time rather than a long one).

I’ve also seen some arguments over what debt should be considered high versus low priority. Some people are okay with student loans and car loans hanging around for awhile, though almost everyone is in agreement that credit card debt should be tackled quickly!  I’m of the mind that I want ALL my debt gone. That being said, I’ve still prioritized my debt such that I have paid/plan to pay: (1) credit cards, (2) car, (3) student loans (4) medical bills. To me, our medical debt that has no interest is way less burdensome than my student loans (mostly at 6.5% interest), even though the overall amount of the student loan debt is significantly larger than the medical debt.

Those are just my thoughts.

How have you prioritized debt repayment savings? And, among your various forms of debt, how have you ordered or prioritized which debt to pay first? Do you do the snowball method (smallest debt first), avalanche method (highest interest first), or some other arrangement (such as the most personally satisfying)?

Personal finance is just that – personal. So I don’t think there’s one “right” or “wrong” answer and I think there are multiple different routes to the same end-goal (being DEBT FREE with a good financial security net). Just curious about your thoughts on the matter!


Ashley’s April 2015 Debt Update

by

Happy Monday! Hope you all had a good weekend!

This weekend was our little camping trip I mentioned in a previous post (couldn’t find the link). Basically, the town where we live hosted an overnight camping thing. It cost $5  for a family of 4 to camp, and they provided star gazing (with giant telescopes), a big outdoor movie screen playing Wall-E, a bonfire with storyteller, and tons of other perks (e.g., playscapes for kids were on-site). Husband and I used to be avid campers but this was our first time to go since the girls were born. This was a perfect “get your toes wet” kind of experience because it was so short (just one night), and had lots of fun amenities for kids. We had a blast (minus my allergies and all), and I expect stuff like this will only become MORE fun as the girls get older! Who doesn’t love some good old fashioned cheap fun!?

Anyway…. let’s get to the heart of this post. It’s time for another debt update. But before we dive into the table let me explain what I’ve done here….

I’ve now added a new loan to the list titled Balance Transfer student loan. This loan amount includes the original balance from my Navient loan #1-01 of $5821 (I used the exact 10-day payoff amount) PLUS the 2% initiation fee, for a total balance of $5937 (if you’re catching up, I wrote more about the decision to do a balance transfer here).

For now, I’ve decided to leave the rest of my Department of Education loans grouped together. When I move onto focusing on a new one, I’ll probably do the same thing and separate just the one new focal loan. Otherwise, for continuity and ease, I’ve left them grouped together. The other thing to note, however, is that I’ve changed the amount in the “original debt” column for my Department of Education loans to reflect a lower amount (equal to subtracting the amount from loan 1-01, which is now separate). I’ve also changed the APR (it used to range from 6.55-8.25%, but I’ve now separated the only 8.25% loan – my balance transfer loan – so all the rest of my Department of Education loans are 6.55% APR.

So hopefully that should explain the changes. Everything else is pretty straight forward.

PlaceCurrent BalanceAPRLast Payment MadeLast Payment Date Original debt, March 2014
Capital One CC-17.9%-Paid off in March 2014$413
Mattress Firm-0%-Paid off in May 2014$1381
Wells Fargo CC-13.65%-Paid off in May 2014$7697
BoA CC-7.24%-Paid off in June 2014$2220
License Fees-2.5%$1119Paid off in April 2015$5808
PenFed Car Loan$154232.49%$100April$24040
Balance Transfer student loan (Former Navient 1-01)$59370% (through April 2016)$0(balance transfer initiated on 4/2/15)$5937
Navient - Federal Student Loan$40788.25%$116April$4687
Navient - Dept of Education student loans$665566.55%$260April$63254
ACS Student Loans$210407.24%$77March$21035
Medical Bills$61360%$124April$9000
Totals$119,170 (Last month = 120,610)$1796Starting Debt = $145,472

I guess I do have a couple more notes I want to make about my debts this month…

First, you’ll notice another really low car payment this month (last month I only paid $50, and this month only $100). That’s because I really wanted to knock out those two debts I’ve been battling (a medical bill and the license fees). Also, since I initiated my student loan balance transfer this month I didn’t actually make any payments on it yet.

Starting in May, I’ll be making payments of $500/month toward my balance transfer student loan, and will be increasing my car loan payment as well. I’ll continue making minimum payments on everything else, so the size of my car loan payment will fluctuate depending on how much money we have to put toward debt during the month, but my hope is to be able to put at least $1,000 (or more) toward it fairly regularly from here on out until its gone!

Exciting stuff!!!

What’s the most recent debt you paid off?

 


Insane or Crazy Like a Fox?

by

Have you ever heard that the definition of insanity is doing the same thing over and over and expecting a different result?

Welllll, does it count as being insane if you are doing the same thing over again and expecting a different result, but you’ve learned something new throughout the process that hopefully changes the outcome you’re anticipating?

Does this even make sense at all?

I think so. I’ll just think of myself as crazy like a fox.

So here’s the deal (and, please, refrain from the exasperated sighs until I finish)…..

I’m changing up my debt-repayment game plan.

Again?

Yes. Again.

I’ve been calling my car loan repayment my race to 20K (because the loan balance was approximately $20,000 when I began). This was back when I was making $3,500 monthly debt payments (last summer) and thought I could reasonably expect to pay off the car within 6 or 7 months. I soooo had my eye on the prize for a March 2015 payoff.

But, alas, things have changed.

Our income went down. Our debt payments went down. We’re only a few weeks from March and nowhere near paying off the car.

That’s not to mean we haven’t made good progress. When I started the race to 20K back in July the full balance was actually $22,742. As of last month I had just dipped below $16,000 owed (averaging over $1,000/month toward the payment).

BUT….

I need some quick wins. And with a balance that high, there’s not going to be anything “quick” about paying off the car.

That, plus comments many of you have left, have made me reconsider our game plan a bit. So here’s the new debt plan of action:

We’re re-adopting a modified snowball approach (aka: attacking lowest debt first) so we can re-gain some traction and feel a good boost when a debt is conquered. Here’s what’s up on the chopping block:

  1. License Fees. I made a massive payment on the license fees this month, bringing the total owed to $1344. The goal date to have it eradicated is April 2015.
  2. Medical Debt #1. Note that I’ve always grouped our medical debts together for ease, but we are actually making 2 separate monthly payments (one for $25/month and one for $50/month). The $50/month payment will be done in 3 more payments, by May 2015. Although this isn’t a huge deal from a goal perspective (this will be gone simply from making our regular $50/month payments, no extra), it will be nice to free up that extra $50/month to apply toward other debts. Plus I still consider it a win to have the debt behind us!

Aaaaaand, that’s as far as I know now. My next smallest loan is for a federal student loan (balance = $4347), which also happens to have one of my largest interest rates (8.25%), but I just can’t let go of my desires to pay off the car. My rationale is that I can increase my student loan payments to keep the balances from growing (since my minimum payments don’t even cover the interest), but by May I could refocus back on the car as my #1 priority. If I do that, I’d have a solid 8 months to work on chipping away at the loan, with a tentative goal of having it paid in full by the end of December 2015. Remember that we bought the car (original balance $30,000) in March of 2013, so I would LOVE LOVE LOVE to have it paid in full in under 3 years from purchase date. It would be so lovely to begin 2016 consumer-debt free, with only student loans (and that one low-payment interest-free medical debt) remaining.

We’ll see. I can’t commit yet to what will be #3 on the chopping block. But I do know that it will feel oh-so-good to get those license fees and the one larger-payment medical bill behind us. Especially with the license fees, having them paid off will feel like the closing of a terrible, long-ago chapter of our lives that has been hanging around for entirely too long (over a decade, but whose counting?).

Only one other teeeeeeeny thing I need to mention that may serve as a competing interest for our debt payment funds. But that will have to wait for another post. (CLIFF HANGER!) Check back on Thursday for the juicy details.  ; )

What debt are you currently focused on? What debt(s) motivate you the most?


Ashley’s February Debt Update

by

There have been some big changes going on over here in the months of January and February to shake-up our debt payment plan. I’ve got a post coming up later today with more details about our new plan of action, but in the meantime, enjoy a nice little debt update.

PlaceCurrent BalanceAPRLast Payment MadeLast Payment Date Original debt, March 2014
Capital One CC-17.9%-Paid off in March 2014$413
Mattress Firm-0%-Paid off in May 2014$1381
Wells Fargo CC-13.65%-Paid off in May 2014$7697
BoA CC-7.24%-Paid off in June 2014$2220
License Fees$13442.5%$844February$5808
PenFed Car Loan$155502.49%$450February $24040
Navient - Federal Student Loans$43478.25%$116February$4687
Navient - Dept of Ed$721838.25-6.55%$260February $69191
ACS Student Loans$210407.24%$77January $21035
Medical Bills$63360%$75February $9000
Totals$120,800 (Last month = 122,312)$1822Starting Debt = $145,472

I’m pretty disappointed in the debt payment this month. I really like to put at least $2,000/month toward debt or else it feels like the needle is barely moving (note, I realize that’s still a ton of money to put toward debt every month, but when we started off with nearly $150,000 of debt, you can’t just nickel-and-dime your way out of it!!!) BUT I’ve still got one more student loan to make a payment on this month (it’s not due until the very end of the month), and I hope to make an extra payment toward it to account for some interest so, with any luck (and no over-speding this month!!!), I’ll still break the $2,000-mark for the month.

Also note, that although my Navient (department of education) loan balance is still higher than its original balance, it’s come down since last month (see last month’s debt update here). So, I really am trying to take strides toward not continuing to accrue interest and, instead, pay it down little bit by little bit. (Side note: It also may be worth mentioning that my ACS loan balance is staying exactly the same because it was a subsidized loan. Since I’m on the Income-Based-Repyament plan, the unpaid interest is forgiven instead of being added to the loan balance. The reason why the same is not true with the Navient loan is because some of those loans are unsubsidized, so interest isn’t forgiven on them and has continued to accumulate. This isn’t anything crazy, just the normal terms of IBR. Unpaid interest is forgiven, but only on subsidized loans).

Check back later for an updated debt plan of action (hint:  you can probably guess at some of these changes just by looking at my recent debt payments). I’m really excited to kick some debt booty and get rid of a couple of monthly payments!

How much do you try to make in debt payments each month? How close are you to paying off whatever debt you’re currently focusing on?


What Year Is It?

by

What day is it? What week is it?

Is anyone else having this issue? It’s like I have NO IDEA what is going on around me right now! Things are moving at warp speed and I’m just trying to keep up. Probably the time off from the holiday. College session doesn’t officially start back until Monday, but instructors are back full-force this week. Yes, even online we report back. I’ve been doing training sessions and answering student emails and tweaking minor things on syllabi and lesson plans and just trying to keep all the balls in the air. Things tend to settle back down a bit once we get a couple weeks into the semester and things start smoothing out.

In the meantime….what’s the best debt-payoff calculator (online, free) that you use?  The one I used to swear by has recently disappeared. It was one through CNN, but its now gone and the calculator in its place doesn’t have the same versatility I’m used to.

What I’m looking for:

  • Can enter multiple, different kinds of debts (with different interest rates)
  • Can see payoff schedule based on different factors (paying a set amount per month, paying minimums, using the snowball method, using the avalanche method)
  • Offers visuals, like charts or figures

I guess that’s really it. Why is it so hard for me to find something like this? I either find calculators that will only let you enter a single APR (doesn’t work for me since I have various debts with hugely different APRs), or its based only on minimum payments, or it doesn’t let you play around to see estimated pay-off dates based on which payment method you’re using (e.g., snowball versus avalanche)

Give me your recommendations! I’d love to hear them!

Many thanks!


Question of the Week – Tackling Debt

by

This is our Sunday series where we all respond to reader questions. If you want to submit a question, please go to this post.

Question of the Week

 Are you planning to tackle debt in an “all-out” kind of style or more of a “slow and steady wins the race” pace? – Jocelyn

Stephannie

Our plan is to sacrifice as much as we can stand to pay it off as quickly as possible. Life gets in the way sometimes but we just want that burden gone. 

Jim

To be honest, I am a little in the middle.  I am throwing the majority of our income, setting up our emergency fund and on debt.  But at the same time, there is a lifestyle that I have grown to love.  Being home when my children wake up, when they go to bed, and everything in between I simply love and for the most part am probably not going to change.  But as my income grows from all my ventures from home, more money will be thrown toward debt.

Hope

I did not even have to think about this one…I’m all in! I am so anxious to be out of debt and free up some of my income that every dime is thought and re-thought before it’s spent.  I have spreadsheets upon spreadsheets exploring different scenarios.  Granted, I have to balance my “all in” with four kids and their lives too, but I am pedal to the metal…all in!

Ashley

Is it cheating to say both? To be fair, we’ve been paying down our debt for over a year now, but it’s definitely been at more of a “slow and steady” pace. Starting in January of this year we really got gazelle intense. I am SOOOO committed to eradicating our credit card debt. I am trying to tackle it with absolute dedication (examining all opportunities to cut costs, increase income, etc.). Our goal date for being credit card debt-free is March 2015 (one year after starting blogging here at BAD), but if I have it my way we’ll be finished by the end of 2014. But our credit card debt makes a relatively small proportion of our overall debt (which also includes a car loan, license fees, medical debt, and student loans). I see us staying focused and intense on paying off the car and license fees (and will continue blogging during this time). But If I am 100% honest, I feel much less urgency about the medical debt (which is interest-free) and student loans (which is NOT interest-free). Everyone I know with student loans basically finances it over the course of a mortgage:  15-30 years!!! I don’t want to be in debt that long, but the numbers are so huge and daunting, I would be lying if I said I am certain we can remain gazelle intense until its gone!!! I guess I haven’t fully decided regarding our pace of debt-repayment for these debts (medical & student loans). I’m hoping that as we continue along the journey, each additional “win” will help build momentum and make the process feel easier and more comfortable as it simply becomes our way of life. But if anyone would like to share a success story or tips for staying motivated, please leave comments! I find success-stories particularly compelling and would love any and all tips on staying motivated for the long-haul!

The Psychological Aspect of Debt Repayment

by

I have been having a tough time lately.

We all know my #1 goal – ERADICATE credit card debt. Do whatever it takes to get it out of here!

And yet, I’m having such a tough time.

I look at all our other debts and I want to pay toward all of them (more than just the minimums), so I’m having a really hard time reminding myself that – NO! – I’m going to pay minimums for everything else, and put all the extra money toward credit card debt.

It’s especially hard since the credit card I’m currently paying toward (Wells Fargo) has such a high balance. I really “get” the Ramsey-esque idea of paying off lower debt first for the psychological “boost.” But in this case we’re talking about a HUGE difference in interest rates!

Here are my two credit cards that currently have balances (remember – I just paid off a third card about a month ago)

  • Wells Fargo, APR = 13.65%
  • Bank of America, APR = 7.24%

My Wells Fargo card has almost DOUBLE the interest rate as my Bank of America card. I want to have the discipline to tackle the higher APR card first so I’m not just throwing away money toward interest……but it’s hard, y’all!!! (side-note:  my WF balance is almost thee times higher than the BoA balance. I’ll give you updated balances at the beginning of May).

Ugh!

Same thing applies to the license debt we’re paying. The minimum is $55/month, but when I pay online, it’s broken down into a dozen smaller fees. Many are only in the $250 range. It would feel SO GOOD just to pay the entire $250, instead of dragging it out over FIVE MONTHS paying only the minimums. But this is interest-free debt so it makes no sense to do that when I’m paying HUNDREDS in interest to Wells Fargo every month.

 

Somebody save me from myself! I’m struggling!